Eddy Cue on Apple Ebook Price Fixing Verdict: It's Not Right

By Jeff Gamet

Dec 2nd, 2014 7:31 PM EST

With US$450 million on the line, Apple is ready for a court battle where it hopes to overturn Federal Judge Denise Cote's ruling that it participated in an ebook price fixing scheme. For Apple, the fight isn't about the money, but instead is about clearing the company's name and correcting a ruling senior vice president of Internet Software and Services Eddy Cue says just isn't right.

We feel we have to fight for the truth. Luckily, Tim [Cook] feels exactly like I do, which is: You have to fight for your principles no matter what. Because it's just not right.

The fight Mr. Cue and CEO Tim Cook are referring to stems from a Federal lawsuit the U.S. Department of Justice won in 2013 alleging Apple and several big-name publishers colluded to artificially raise the price of ebooks.

The DOJ claimed Apple, along with Penguin, MacMillan Simon & Schuster, HarperCollins, and Hachette Book Group to change how books were priced. Amazon was selling ebooks at $9.99 each, undercutting list prices by several dollars and pushing potential competitors out of the market.

Apple insisted it wasn't orchestrating a conspiracy, and that it was only looking for terms that would allow it to compete with Amazon's monopoly. The company was looking to bring ebooks to the soon-to-be released iPad, but wasn't hanging the tablet's introduction on the feature. Penguin CEO David Shanks testified that Apple had a "take it or leave it attitude" towards the ebook market.

The publishers all settled out of court to avoid potentially devastating fines, but Apple stood firm against the DOJ's accusations. Judge Cote ultimately sided with the DOJ, calling Apple the ringleader in a campaign to take the ebook market from Amazon.

Apple claimed it was really Amazon abusing monopoly power by pricing books well below cost to drive competitors out of the market.

At least some book prices did go up after the iPad was released and publishers were selling titles under their new agency model, but that isn't Apple's fault, according to Mr. Cue.

"Is it a fact that certain book prices went up? Yes. If you want to convict us on that, then we're guilty," Mr. Cue said. "I knew some prices were going to go up, but hell, the whole world knew it, because that's what the publishers were saying: 'We want to get retailers to raise prices, and if we're not able to, we're not going to make the books available digitally.'"

He added that prices for other books dropped thanks to new market competition.

Judge Cote saw Apple's actions leading up to the launch of the iBookstore along side the iPad as the foundation for the alleged conspiracy: presenting each publisher with the same contract, including a clause that let Apple lower book prices to match competitors, and a dropped clause where Apple demanded other resellers must operate under the agency pricing model, too.

Apple's defense at trial seemed strong, but clearly not strong enough to convince Judge Cote. Mr. Cue thinks the real problem for Apple wasn't that the alleged conspiracy actually took place — something he still maintains didn't happen — but instead that he didn't adequately document his meetings and activities with publishers.

"If I had it to do all over again, I'd do it again. I'd just take better notes," he said.

Following the verdict, Apple struck a deal where it will pay $450 million if the ruling is upheld, but nothing if it's overturned. Apple's legal team is betting the case will be overturned, while the DOJ is betting it won't. Both sides, it seems, feel they still have a strong case.

Apple's next hurdle starts on December 15 when it argues its case in U.S. Appeals court. There isn't any guarantee Apple will get Judge Cote's ruling overturned, but the company has had more than a year to prepare its strategy.

It's a safe bet Apple is ready to come out swinging in court. Mr. Cue made it clear he, and CEO Tim Cook, feel Apple didn't participate in a price fixing conspiracy and they aren't ready to give up their fight.

Even if Apple does get Judge Cote's ruling overturned, however, it may not make that much of a difference in the book reselling market. Amazon has already been given what amounts to a free pass to control ebook pricing thanks to the court decision, and the online retailer has very openly flexed its muscles.

Earlier this year, Amazon intentionally delayed shipping Hachette's books, and even pulled the "Buy" button from the publisher's books, as a move to get better pricing deals for itself. In essence, Amazon bullied Hachette into lowering what it charges the retailer for books.

Apple has the opportunity to essentially clear its name, but that won't likely have much of an impact on book prices. In the end, Amazon gets to continue using its tactics to dictate pricing and push competitors out of the book market.